Monday, April 28, 2008

Does paying tax make us happy?

I know that just about everyone who has read this far will think this post has to be about masochism, or schadenfreude. What is the definition of masochism? Masochism is the pleasure that some people feel when they pay their taxes. What is the definition of schadenfreude? Schadenfreude is the pleasure that some people feel when others have to pay more tax than themselves.

Actually, that is all I intend to write about masochism and schadenfreude in this post. The rest of the post is about the findings of some scientific research that suggests that paying tax can stimulate the same brain regions as are fired when basic needs such as food and pleasures are satisfied (B Harbaugh, U Mayr and D Burghart, ‘Neural responses to taxation and voluntary giving reveal motives for charitable donations’, Science, 2007).

In the experiment 19 women were given $100 and then their brains were scanned as they watched some of their money go to a food bank (a local charity) through mandatory taxation and as they made choices about whether to give more money voluntarily or to keep it for themselves. When the participants saw their money going to the food bank this fired off the same areas of their brains that respond to basic rewards like sweets, nutrients or positive social contact – indicating that they felt good, even when they had no choice about giving. The activation of these brain areas was even larger when the participants gave the money voluntarily.

One of the authors of the study, Ulrich Mayer, claims that the results show that people are to varying degrees pure altruists. Arguably, however, the results show that giving provides emotional benefits to the giver. When they give anonymously some people may give solely for the benefit of others, but most would do it for the warm inner glow.

I am not particularly surprised by the results of this study. People like to see others being helped when they fall on hard times because they know that they would appreciate help themselves in similar circumstances. I imagine that, if choosing behind a veil of ignorance about their own income, the vast majority would choose to live in a society in which those unable to support themselves were helped by others - and would be more than willing to pay an income-related insurance premium for this purpose as the price of admission.

At the same time, however, we often have good reasons to think of redistributive taxation as more akin to extortion than payment of an insurance premium. A substantial proportion of redistribution occurs because the recipients of transfers have the political muscle to have the coercive powers of the state used for their benefit. Paying tax could not be expected to make people happy under those circumstances.

It seems to me that the way this experiment has been structured tends to favour the result obtained.First, I wonder whether inclusion of men among participants would make any difference to the results. For example, men might be less sympathetic than women to the plight of needy people.Second, I wonder whether it would make any difference if participants were required to work for the initial allocation of funds. People might have less resistance to compulsory sharing of windfalls than money that they have worked to obtain.Finally, I wonder what difference it would make if people saw their money being used by welfare recipients to fund such things as purchase of alcohol or gambling. It seems to me that a person would have to be a masochist to feel happy about paying tax under such circumstances.

I’m sorry! I forgot I wasn’t going to mention masochism again in this post.

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